Finance Essay

2967 WordsJan 5, 201512 Pages
Finance Theory II (Corporate Finance) Katharina Lewellen February 5, 2003 1 Today Preliminaries Introduction to the course Corporate finance Types of questions Course outline Course requirements Case of Unidentified Industries 2 Preliminaries Texts − Brealey & Myers, Principles of Corporate Finance, 7th edition − Higgins, Analysis for Financial Management, 7th edition − Case and Readings Packet Professor − Katharina Lewellen 3 Introduction Corporate finance Investment policy How the firm spends its money (real and financial assets) Financing and payout policy How the firm obtains funds (debt, equity) and disposes of excess cash 4 Balance sheet view of the firm Assets Liabilities Current Liabilities Current Assets Long-term debt Fixed Assets 1. Tangible 2. Intangible Shareholders’ Equity 5 Introduction, cont. But we also need to understand… Capital markets Types of securities (stocks, bonds, options…) Trade-off between risk and return Pricing Taxes and government regulation 6 Financial markets Firms Curr assets Fixed assets Debt Equity Financial Markets Individuals Financial Intermediaries Government 7 Introduction, cont. Finance is really about value Firms Projects and real investments Securities Common characteristic Invest cash today in exchange for cash (hopefully) in the future Central question How do we create value through investment and financing decisions? 8 Types of questions Investment and financing decisions At the end of 1999, GM had $11.4 billion in cash. Should it invest in new projects or return the cash to shareholders? If it decides to return the cash, should it declare a dividend or repurchase stock? If it decides to invest, what is the most valuable investment? What are the risks? 9 General Dynamic Major contractor in the defense industry Doing well

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